US Treasury Secretary Janet Yellen has warned the government that if no action is taken on the debt ceiling, the Treasury will run out of money by 18 October, setting off a chain reaction with effects that are difficult to predict.
“It is uncertain whether we could continue to meet all the nation’s commitments after that date”
Yellen wrote this in a letter sent to House Speaker Nancy Pelosi on 8 September, adding that this prediction is based on estimated tax payments.
Debt ceiling, the risks of default in US according to Janet Yellen
The Treasury has reportedly already drawn down its extraordinary reserves to meet the payments since the debt ceiling rule expired in August by postponing some payments.
Such measures include, to quote Yellen:
“A suspension of certain investments in the Civil Service Retirement and Disability Fund, the Postal Service Retiree Health Benefits Fund, and the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan”.
If Parliament does not act to raise the ceiling, there is a serious risk of a resounding default in the world’s leading economy.
Inflation rises in the US and the Fed is ready to intervene
This news comes at a time when inflation in the US is raising its head in a very worrying way. Consumer prices rose by 5.8% in June, the highest rate in 13 years, which is why the Fed, according to many observers, may be ready to intervene, reducing its quantitative easing and raising rates.
In this context, cryptocurrencies, which have long been regarded as an anti-inflationary tool, could face renewed interest from investors. The fact that they have the highest adoption rates in those very countries of Latin America, Central America and Africa, seems to confirm this thesis.
In the intentions of its mysterious creator, Satoshi Nakamoto, the creation of Bitcoin was to be a tool that would not be influenced by the monetary policies of banks in order to respond to the needs of the markets.
Even the fact of having a limited number of bitcoin (21 million), was intended precisely as an anti-inflationary measure.
“In the bitcoin world, they don’t use the term ‘inflation’ quite the way that economists do, as a general increase in consumer price. Instead, they tend to use it to mean an increase in the money supply”, said economist Frances Coppola.
Authorities want to regulate and control crypto assets
Not everyone clearly agrees with this argument. In July, Senator Elizabeth Warren said in an interview with CNBC that she was very sceptical about the idea that Bitcoin could be a tool to protect against periods of high inflation, stating that in her opinion:
“Crypto coins are not going to have their own inflationary pressures. But inflation may come from a different source than what happens with dollars, but look at what’s happened in the high volatility in the price of these things. The idea that they’re somehow a protection or a hedge, I don’t think that’s going to be borne out over time”.
In this regard, Warren expressed her belief that cryptocurrencies should be more regulated, hoping that a regulatory body such as the FDA could come into existence soon:
“Once we really had an FDA that stood up and that said, ‘You know what, we’re going to test the drugs before they go onto the market. We’re going to assure the public that they are safe.’ Then look what happened. We got a whole lot more investment and obviously a much bigger market that helped the entire world”, as if to say that more regulation and more control would be a benefit to investors.
The same thought was expressed a few days later by Federal Reserve Chairman Jerome Powell, who lamented the complete deregulation of cryptocurrencies, which should soon be brought to an end.
The attitude of the SEC, which in 2021 opened a series of investigations into many leading crypto companies for alleged violations, shows that perhaps the beginning of a greater regulation of the crypto world has already begun.